UMC Reports Third Quarter 2018 Results

3Q18 reaches record high revenue of NT$39.39 billion; 14nm FinFET accounted for 5% of sales

Third Quarter 2018 Overview¹:

• Revenue: NT$39.39 billion (US$1.29 billion)
• Gross margin: 17.6%
• Foundry revenue from 28nm: 13%; Foundry operating margin: 6.4%
• Foundry capacity utilization rate: 94%
• Net Income attributable to stockholders of the parent: NT$1.72 billion (US$56 million)
• Earnings per share: NT$0.14; earnings per ADS: US$0.023

United Microelectronics Corporation UMC TWSE: 2303))) ("UMC" or "The Company"), a leading global semiconductor foundry, today announced its consolidated operating results for the third quarter of 2018.

Third quarter consolidated revenue was NT$39.39 billion, up 1.4% QoQ from NT$38.85 billion in 2Q18 and 4.5% YoY from NT$37.70 billion in 3Q17. Consolidated gross margin for 3Q18 was 17.6%. Net income attributable to stockholders of the parent was NT$1.72 billion, with earnings per ordinary share of NT$0.14.

Jason Wang, co-president of UMC, said, "In the third quarter, foundry revenue reached a record high of NT$39.33 billion, up 1.4% from 2Q18. Foundry operating margin was 6.4%. Utilization rate reached 94%, bringing wafer shipments to 1.8 million 8-inch equivalent wafers. Loading across 8" and mature 12" technologies continued to operate at full capacity, as the company generated NT$10.16 billion of free cash flow during the quarter. In addition, we saw an increase in computing related applications, which offset the decline in the communication segment. From a long-term perspective, we believe numerous essential semiconductor components will continue to strengthen our specialty technology business. For example, Allegro Microsystems, a leader in high-performance power and sensor solutions, signed a multi-year manufacturing agreement with UMC to ensure long-term capacity support for their growing wafer requirements in industrial and automotive segments."

Co-president Wang continued, "Looking into the next quarter, we are seeing a softening of wafer demand from customers, partly due to continued softness in entry and mid-end smartphones. The recent escalation of trade tensions, rising global crude oil prices and continuous weakening of emerging market currencies could further increase uncertainties in the broader economy. Meanwhile, we will continue the execution of our strategy to invest in return-driven goals while moderating the expansion of advanced technologies. We are confident that UMC's globalization efforts will increase our customers' competitive edge through geopolitical risk mitigation while enhancing shareholder value to preserve the best interests of all our stakeholders."

Summary of Operating Results

Net operating revenues in 3Q18 increased 1.4% to NT$39.39 billion, including NT$39.33 billion from the foundry segment. Revenue contribution from 40nm and below technologies declined to 40%. Gross profit increased 3.7% to NT$6.92 billion, or 17.6% of revenue. Operating expenses increased 9.4% to NT$5.70 billion. Net other operating income was NT$1.21 billion, leading to operating income of NT$2.44 billion. Net non-operating expense was NT$1.61 billion. Net income attributable to stockholders of the parent was NT$1.72 billion.

Earnings per ordinary share for the quarter was NT$0.14. Earnings per ADS was US$0.023. The basic weighted average number of outstanding shares in 3Q18 was 12,053,892,152, compared with 12,048,575,089 shares in 2Q18 and 12,208,239,978 shares in 3Q17. The diluted weighted average number of outstanding shares was 13,354,955,886 in 3Q18, compared with 13,268,862,054 shares in 2Q18 and 13,441,188,010 shares in 3Q17. The fully diluted share count on September 30, 2018 was approximately 13,725,383,000. On September 30, 2018, UMC held 200 million treasury shares acquired from the 17th share buy-back programs.

Detailed Financials Section

Net operating revenues grew 1.4% to NT$39.39 billion. COGS increased 0.9% to NT$32.47 billion, as depreciation declined 4.9% to NT$11.55 billion while other manufacturing costs increased 4.4% to NT$20.92 billion. Gross profit was NT$6.92 billion. Operating expenses increased 9.4% to NT$5.70 billion. General and Administrative (G&A) expenses increased 28% to NT$1.39 billion. Sales & Marketing expenses declined 10.5% to NT$0.99 billion and R&D expenses were up 10% to NT$3.33 billion, or 8.5% of net operating revenues. Net other operating income was NT$1.21 billion, leading to an operating income of NT$2.44 billion.

Net non-operating expense in 3Q18 was NT$1.61 billion, primarily resulting from NT$961 million in exchange loss and NT$507 million in net interest expense.

Cash inflow from operating activities was NT$15.77 billion. Cash outflow from investing activities totaled NT$5.48 billion, including NT$5.61 billion in CAPEX spending for the foundry segment, resulting in free cash flow of NT$10.16 billion. Cash outflow from financing activities totaled NT$3.25 billion, mainly from NT$8.56 billion in the payment of cash dividends, which was partly offset by cash inflows of NT$3.11 billion from bank loans and NT$2.20 billion in treasury stock sold to employees. Net cash inflow in 3Q18 was NT$6.33 billion. Over the next 12 months, the company expects to repay NT$3.01 billion in bank loans.

Cash and cash equivalents increased to NT$81.52 billion. Days of inventory increased one day to 50 days.

Current liabilities decreased to NT$51.43 billion. Total liabilities decreased to NT$160.11 billion, leading to a debt to equity ratio of 75%.

Analysis of Revenue² for Foundry Segment

Revenue from Asia Pacific increased to 52%, while sales contribution from North American customers declined to 34%. Revenue from Japan remained at 3%.

Business from 14nm increased to 5% of 3Q18 revenue, while 28nm contribution declined to 13%.

Revenue from fabless customers increased to 93% of revenue.

The communication segment declined to 43% of sales, while revenue from consumer applications remained at 28%. Computer related applications represented 19% of revenue.

Blended ASP Trend for Foundry Segment

Blended average selling price (ASP) in 3Q18 increased marginally.

(To view ASP trend, visit http://www.umc.com/english/investors/3Q18_ASP_trend.asp)

Shipment and Utilization Rate³ for Foundry Segment

In 3Q18, wafer shipments declined 2.3% to 1,804K. Quarterly capacity increased 1.0% QoQ to 1,938K, resulting in an overall utilization rate of 94%.

Capacity⁴ for Foundry Segment

Total capacity in the third quarter reached 1,938K 8-inch equivalent wafers. We anticipate our fourth quarter capacity to grow by approximately 1% QoQ to 1,958K 8-inch equivalent wafers, which included capacity expansion at Fab 8C and Fab 8D.

CAPEX for Foundry Segment

CAPEX spending in 3Q18 was US$183 million, bringing the first nine months of 2018 capital expenditures to US$509 million. Full year 2018 CAPEX is budgeted for US$1.1 billion.

Fourth Quarter of 2018 Outlook & Guidance

Quarter-over-Quarter Guidance:

• Wafer Shipments: To decrease by 4-5%
• ASP in USD: To decline by 4-5%
• Profitability: Gross profit margin will be in the low-teens % range
• Foundry Segment Capacity Utilization: High 80% range
• 2018 CAPEX for Foundry Segment: US$1.1 billion

Recent Developments / Announcements

Please visit UMC's website for further details regarding the above announcements

Conference Call / Webcast Announcement

A live webcast and replay of the 3Q18 results announcement will be available at www.umc.com under the "Investors / Events" section.

About UMC

UMC UMC TWSE: 2303))) is a leading global semiconductor foundry that provides advanced IC production for applications spanning every major sector of the electronics industry. UMC's comprehensive foundry solutions enable chip designers to leverage the company's sophisticated technology and manufacturing, which include world-class 28nm High-K/Metal Gate technology, 14nm FinFET volume production, specialty process platforms specifically developed for AI, 5G and IoT applications and the automotive industry's highest-rated AEC-Q100 Grade-0 manufacturing capabilities for the production of ICs found in vehicles. UMC's 11 wafer fabs are strategically located throughout Asia and are able to produce over 600,000 wafers per month. The company employs more than 20,000 people worldwide, with offices in Taiwan, China, Europe, Japan, Korea, Singapore, and the United States. UMC can be found on the web at http://www.umc.com.

Note from UMC Concerning Forward-Looking Statements

Some of the statements in the foregoing announcement are forward-looking within the meaning of the U.S. Federal Securities laws, including statements about introduction of new services and technologies, future outsourcing, competition, wafer capacity, business relationships and market conditions. Investors are cautioned that actual events and results could differ materially from these statements as a result of a variety of factors, including conditions in the overall semiconductor market and economy; acceptance and demand for products from UMC; and technological and development risks. Further information regarding these and other risks is included in UMC's filings with the U.S. Securities and Exchange Commission. UMC does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

Safe Harbor Statements

This release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended, and as defined in the United States Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets" and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual performance, financial condition or results of operations of UMC to be materially different from what is stated or may be implied in such forward-looking statements. Investors are cautioned that actual events and results could differ materially from those statements as a result of a number of factors including, but not limited to: (i) dependence upon the frequent introduction of new services and technologies based on the latest developments in the industry in which UMC operates; (ii) the intensely competitive semiconductor, communications, consumer electronics and computer industries and markets; (iii) the risks associated with international business activities; (iv) dependence upon key personnel; (v) general economic and political conditions; (vi) possible disruptions in commercial activities caused by natural and human-induced events and disasters, including natural disasters, terrorist activity, armed conflict and highly contagious diseases; (vii) reduced end-user purchases relative to expectations and orders; and (viii) fluctuations in foreign currency exchange rates. Further information regarding these and other risks is included in UMC's filings with the United States Securities and Exchange Commission. All information provided in this release is as of the date of this release and are based on assumptions that UMC believes to be reasonable as of this date, and UMC does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

The financial statements included in this release are prepared and published in accordance with Taiwan International Financial Reporting Standards, or TIFRSs, recognized by the Financial Supervisory Commission in the ROC, which is different from International Financial Reporting Standards, or IFRSs, issued by the International Accounting Standards Board. Investors are cautioned that there may be significant differences between TIFRSs and IFRSs. In addition, TIFRSs and IFRSs differ in certain significant respects from generally accepted accounting principles in the ROC and generally accepted accounting principles in the United States.

This presentation is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.

View source version on businesswire.com: https://www.businesswire.com/news/home/20181024005436/en/